Cooperation Minister Kadakampally Surendran has written to Union Finance Minister Arun Jaitley and RBI Governor Urjit Patel urging them to relax the CRAR (Capital to Risk-weighted Assets Ratio) in respect of District Cooperative Banks (DCBs), which has been pegged at 9% for the current year.
In his letter, released to the media here on Thursday, Mr. Surendran said that such a high rate of CRAR was unattainable during the current year as the DCBs were in deep trouble on account of poor recovery of loans and advances post-demonetisation.
He had drawn the attention of the local RBI officials to the serious situation and was assured that there would be a review of the rate, given the situation across the country. However, the DCBs had received a directive from the RBI on March 14 asking them to ensure that they achieve CRAR of 9% by March 31. This was next to impossible, the Cooperation Minister said.
As things stood, the DCBs were in poor financial health and there was a distinct possibility of their reporting higher NPA levels and being forced to make provisioning for bad assets, which would result in erosion of their Tier 1 capital.
Further, the exclusion of DCBs from doing banking business at par with scheduled banks during demonetisation had also affected their financial planning and profitability for the current financial year.
The State government had initiated various measures to mitigate the problem. These included a massive overdue recovery campaign from February 1 and a scheme for one-time settlement and rescheduling of overdue loans with interest incentives for prompt repayment.
However, due to shortage of resources at the customer end, the schemes did not yield the desired results. The fiscal position of the State government did not also allow adequate recapitalisation of the DCBs. As such, there must be a relaxation of the CRAR requirement, Mr. Surendran said.
